IPO Outlook: No Static Expected In Dolby Debut

IPO Outlook: No Static Expected In Dolby Debut

By LYNN COWAN

February 14, 2005 8:20 a.m.

WALL STREET JOURNAL and DOW JONES NEWSWIRES

WASHINGTON -- The initial public offering market is hoping for a big bang this week from Dolby Laboratories Inc.

The San Francisco company, whose sound systems and double-D logo are ubiquitous in the movie industry as well as in consumer electronics, plans to sell 27.5 million shares to the public at a price between $13.50 and $15.50 each.

Founded 39 years ago by Cambridge-trained scientist Ray Dolby, the company started out manufacturing noise reduction equipment for the music industry that eliminated the background "hiss" on recordings, and has since expanded to encompass everything from digital audio systems to Dolby Surround sound in home theaters.

The company's IPO , which is lead-managed by underwriters Morgan Stanley (MWD) and Goldman Sachs Group Inc. (GS), is expected to do well not only because of its brand recognition, but because of its strong financials. Its revenue has grown more than 30% a year since 2002, and its net income rose 28.6% in the fiscal year ended Sept. 24. During that year, its gross margin was 68%, and its after-tax margin was 20%.

"It's what everyone wants, with a protected, branded growing position and a high after-tax margin," said Francis Gaskins, president of IPODesktop.com. "It's the most interesting one we've seen in a long time."

It's not all perfection at Dolby: much of the company's revenue growth in recent years has been from strong sales of DVD players and home theater systems that use its technologies. As that DVD market matures, sales will likely slow, as will Dolby's licensing revenue from those sales. The company is aiming at developing greater licensing revenue from other sources, including digital broadcasting, HDTV, and broadband Internet.

While Dolby's IPO has the best name recognition this week, it's not the largest. Cendant Corp. (CD) is selling its Wright Express Corp. unit through a 40 million share deal that is expected to price between $19 and $21 a share.

Cendant's Wright Express unit, based in South Portland, Maine, is a trucking services company that tracks gas and maintenance spending through a credit-card network, and it has demonstrated five-year compound annual growth rates of 61% in net income.

Also expected is an IPO for Alpha Natural Resources Inc., an Abingdon, Va., coal mining company that is seeking to sell 29.5 million shares of stock between $16 and $18 a share. Rising coal prices have helped fuel Alpha's revenue and profits, as well as some of its publicly traded rivals' stock prices. In December, Foundation Coal Holdings Inc. (FCL) priced its stock at $22, above its original projected range, and it closed Friday at $22.67, up 3% from its pricing.

The expected arrival this week of a few large, high-profile deals follows last week's blizzard of nine IPOs, the largest of which was Salt Lake City chemical maker Huntsman Corp. (HUN) and the most recognizable being teleflorist FTD Group Inc. (FTD). Of the nine, seven closed higher than their offering price on the first day of trading, and the same seven ended the week higher.

Huntsman and Hiland Partners LP (HLND) were among the strongest performers. Huntsman priced at the top of its range and sold more shares than originally anticipated, closing Friday, its first day of trading, up 6.5% from the offer. Hiland Partners, an Enid, Okla., energy company, priced its shares above its original offering range and closed Thursday, its first day of trading, up 29%, the largest first-day gain so far in 2005. It closed Friday up 28.7% from its offer price.

Teleflorist FTD Group Inc. (FTD), based in Downers Grove, Ill., priced in the midpoint of its range and closed on its first day of trading, Wednesday, up 4.6%. On Friday, it closed 1 cent above its offer price, at $13.01.

Other deals flopped. Syniverse Holdings Inc. (SVR), a Tampa, Fla., wireless services provider, priced $4 below the low end of its original offering range of $20 to $22 a share, and closed on its first day of trading, Thursday, flat with its offer price. It closed Friday down 1.6%. Gravity Co. (GRVY), a Korean developer of online games, closed down 6.7% on its first day of trading, Tuesday, and ended the week down 12.7%.

Three deals were delayed last week, one indefinitely. AlgoRX Pharmaceuticals Inc., of Secaucus, N.J., said it was postponing due to market conditions after cutting its per-share price range in an attempt to get it done. Odimo Inc., an online jewelry retailer based in Sunrise, Fla., cut both its share price and size on Friday, and is now expected to price next week. Interactive Health Inc., a Long Beach, Calif., maker of robotic massage chairs, was also delayed until next week.

Elsewhere in the IPO market:

Get ready for some confusion: In back-to-back Securities and Exchange Commission filings Friday, Ready Mix Inc. and Reddy Ice Holdings Inc. filed for initial public offerings. Though it's tempting in the wake of Mardi Gras to hope that the first manufactures drink mixers and the other the ice that goes in them, it's not so. Ready Mix is a Las Vegas-based concrete producer, while Reddy Ice is the Dallas-based packaged ice manufacturer. No word yet on when the two will come to market.

-By Lynn Cowan, Dow Jones Newswires